7/26/2007 @ 11:54AM

Amber Waves Of Green

Once upon a time, a century ago, Americans competed with their transportation for food. Back then, almost 30% of the nation’s verdant farm land was used to grow food for fuel–feeding horses, of course, our bio-chemical transportation infrastructure, instead of today’s thermo-mechanical horsepower. Those days are gone.

America actually has less land under irrigation today and produces stunningly larger quantities of food, for people. As Yogi Berra famously said, “it’s déjà vu all over again.” As of right now, we’re on the way “back to the future” to devour a third of America’s amber waves of corn (the dominant grain crop) to make money, er, ethanol to fuel our cars.

Global oil production is straining to meet the voracious appetite of 21st century transportation, hence the high prices. So a lot of people, including those in our government, think relief can be found in alcohol, specifically, grain ethanol.

The Energy Policy Act of 2005 has a Renewable Fuel Standard (RFS) increasing U.S. fuel ethanol to 7.5 billion gallons per year by 2012, up from today’s 4 billion. But, does using grain alcohol as a major transportation fuel make any sense?

Farmers, and fuel pundits, not to mention some investors, are enjoying the enthusiasm for corn-based alcohol. Good for them. With corn selling at $2 to $3 a bushel more than it did a few years ago, no wonder farmers are eagerly planting corn; total corn acreage is the highest since 1944.

For every extra dollar per bushel, a middling 500-acre farm sees $100,000 flow right to the bottom line. Even though corn prices have softened a skosh recently, no one is predicting a price collapse any time soon.

Collaterally, construction is at a sizzling pace for alcohol breweries–called ethanol refineries, of course, borrowing the language of the hydrocarbon economy. There are already 120 of them, with some 80 more under construction, concentrated in the Corn Belt but stretching all the way to Florida.

Current U.S. ethanol capacity is nearly 6 billion gallons a year. Under-construction capacity will add another 7 billion gallons. At this pace, assuming the incentive policies continue, U.S. ethanol production will easily exceed the policy target of 8 billion gallons by 2011. (For scale context; Americans consume annually about a half-billion gallons of alcohol in the form of beer, wine and spirits, and about 200 billion gallons of petroleum in our internal combustion engines.)

Grain ethanol technology, aka. fermentation, is well established. It can be traced back to ancient Egypt. Think of it as a basic form of solar energy (photosynthesis) and biotechnology (yeast-based fermentation). There is little doubt that America has the land and economic and political muscle to make even more alcohol than is currently planned. Aside from the fact that America is huge with lots of fertile acreage, grain yields per acre are seven times what they were in the 1920s, and will get better yet. Per-acre yields are up 20% in the past decade alone.

Sounds good until one takes a sobering reality check. Even if every cob of corn (and all domestic sugar cane) were converted to fuel, that would displace just 10% of the current U.S. gasoline demand. And, already, ethanol is sparking a food-vs.-fuel fight. Record corn crops are seeing higher corn prices, rather than lower. The price ripples through the entire food chain since, from tortillas to beef, one in four products in the supermarket derives from corn, directly or indirectly.

Don’t get me wrong. I like alcohol as much as the next guy (though preferably well aged in an oak cask first) but we’ll have to undertake quite an expansion of food-to-fuel agriculture to make a meaningful dent in our transportation sector. And, to coin the phrase, some of my best friends are farmers–not to mention my father who grew up on his dad’s grain farm in northern Manitoba.

A cynic might conclude this is more of political food fight. Just look at the U.S. Department of Agriculture map (below) showing Iowa at the epicenter of the location of America’s ethanol capacity. You could be excused for concluding this particular gold rush has as much to do with presidential politics as oil alternatives.

It is the case, nonetheless, that we do need to find lots of options to feed the nation’s gargantuan liquid fuel appetite. Fuel demand is just not going away, or even down, regardless of efficiency or conservation measures. The Energy Information Administration sees transportation fuel demand more than 50% higher by 2030.

Any and all viable sources of liquid fuels are of interest. Of course, we’re setting aside the question of whether it may be just cheaper to drill for more domestic oil from the Gulf of Mexico to the Rocky Mountains, from California to Alaska; or whether our billions-of-barrels-equivalent in coal-to-liquids might make as much economic and geopolitical sense. All subjects for another time.

So what’s the beef with a major expansion in corn alcohol? The big issues with using even more corn, or any grain-based ethanol, boil down to land and water use.

Let’s start with water, the one “hidden” resource that’s just now perking to the top of national environmental concerns. Nearly 1,000 gallons of irrigation water are used to grow enough corn to produce one gallon of ethanol.

And then there’s the nitrogen fertilizer run-off carried by the irrigation (and rain) water into the local waterways. Switching crops over to corn, or planting more corn, substantially increases the run-off. And while nutrient pollution also comes from sewage treatment plants, golf courses and lawns, it is worth noting that the federal regulations that exist for those sources of pollutants don’t apply to farm run-off.

The second issue, the land requirements, highlights a bit of an irony. Some of the same folks unhappy about sprawling urban areas and roads in particular have eagerly embraced the orders-of-magnitude greater land sprawl an ethanol-based transportation system would require. A point of statistical context is illustrative: The total aggregate use of land today for oil fields, pipelines, refineries, and including all our roads and highways, is about than one-tenth the land that would be required just to make the ethanol to fuel our transportation.

Still, America does have a lot of land. And there’s a whole lot of it not essential or productive for food agriculture, or much of anything else for that matter. Ideally, rather than growing water-, fertilizer- and land-intensive crops like corn for fuel, we could use the billions of tons of biomass–weeds, grass and trees–that grow on the vast plains.

Unbeknownst to most, America has more acres of trees today than at the time of the Pilgrims. Over the long run, perhaps not that long either, it’s a much better bet that the source of carbohydrates to make the ethanol won’t come from our food supply, but from wood and weeds (and from the biotrash associated with food crops).

Since humans can’t eat this cellulosic biomass of wood and grass, and since those wild crops grow abundantly with little irrigation or fertilizer (and the crop biotrash is a free byproduct), the negative impacts are dramatically mitigated. For those counting carbon emissions: where the total fuel-cycle corn-ethanol yields a modest 20% net reduction in green-house emissions, cellulosic ethanol reduces emissions 80%.

There’s a rub though. We don’t have any effective way to convert weeds and trees to alcohol. Understanding why calls for a modest understanding of the biology and chemistry here; knowledge that points to sustainable ethanol bets for both investors and policy makers.

Start with the easy-to-make ethanol. The starch in corn converts easily to a form of glucose (as if most of us haven’t noticed given our eating habits). Glucose is easy for enzymes to break down, and also easy for natural yeasts to ferment in to ethanol (which is why that’s the source of beer and bourbon, and alternative automotive fuel).

On the other hand, the abundant and low-cost sources of biomass from trees, grass and corn stalks are made from more robust and literally hard-to-digest and ferment celluose, xylose and lignin. So the technology race that’s on today is to find cost-effective techniques to: a) break down the hardy cellulose; and then b) find a way to ferment it. If the latter were easy, the illicit alcohol makers in back-woods stills in days of yore would have been using the forest to make the booze, not just to hide from the long arm of the law.

There are existing and natural processes that do break down cellulose and ferment it; but they’re either not cost effective or commercially viable–yet. There are plenty of inter-related and nontrivial challenges in this bio-engineering race. One core challenge for the genetic engineers is to come up with a bug that can both manage to ferment the highly resistant cellulosic bio-glop, and yet is hardy enough to survive ethanol poisoning. The new bugs, so far, die off when the ethanol they produce reaches concentrations of 5% or 6%.

Inconvenient, to say the least, since the purpose of the fermentation is to produce 100% pure ethanol.
DuPont
claims to have a bug that can live up to a 10% concentration–in effect their bugs die around wine-grade alcohol. Still a long way to go to fuel-grade. So not surprisingly, cellulosic alcohol costs north of $2 a gallon to make, over twice the cost of corn alcohol.

There are some very smart genetic engineers trying crack the cellolosic code. One keeps an eye on the big traditional grain-ethanol and food companies like
Archer Daniels Midland
and
Pacific Ethanol
who have announced cellulosic projects. Then there are companies making (credible) bullish claims on advancing the key enzyme technology like Genencor, a division of Denmark’s Danisco, one of the world’s largest producers of food ingredients.

Notable amongst the rapidly growing field of smaller, leaner (and often more technologically aggressive) cellulosic players are companies like
Novozymes
which is one of the DOE favorites (having received federal funding) who properly highlights their collaboration with Abengoa. Abengoa itself is building the world’s first commercial scale cellulosic ethanol biorefinery in Babilafuente, Spain, and plans to convert their Nebraska corn-ethanol plant to run on straw and corn stalk waste.

Add to the short list (given my family’s western Canadian farming roots), Lignol Energy, which will process Canadian forest waste using proven technology pioneered by a
General Electric
subsidiary.

Finally, perhaps most tantalizing in the public domain is the newly minted
Verenium
formed by the merger of
Diversa
, an enzyme powerhouse, with Celunol, a cellulosic ethanol leader with the nation’s first ethanol pilot facility in Jennings, La.

One intriguing dark horse in this genetic race–”dark” only because they’re so far away–is a clever Australian team at Microbiogen. The bio brainiacs at Microbiogen have eschewed complex modern genetic engineering, and are instead using a souped-up version of the venerable approach to breeding. They are selectively culling an existing natural yeast that’s already pretty happy fermenting cellulosic glop. This latter technique is, of course, how humans have been genetically engineering–breeding–for centuries and how we obtained most of today’s grains, cattle and flowers.

But don’t think cellulosic ethanol will dethrone king oil for transportation. The most optimistic federal study estimates at most 30% of U.S. transportation fuel could come from such sources, and not until mid-21st century. Still, even half that goal is worth pursuing–for both strategic reasons and for investors. It is a very big market. And it will happen.

All these smart bio-engineers will stumble deliberately on an elegant solution, or two–likely sooner than most suspect. In which case the epicenter of fuel crops will shift to bio-trash and the vast prairie and forested states–and not incidentally, put to rest the needless food-fuel conflict.

Written by Mark P. Mills, a physicist and a co-founding partner in Digital PowerCapital, an energy tech venture fund. Mills is also co-author of The Bottomless Well: The Twilight of Fuel, the Virtue of Waste, and Why We Will Never Run Out of Energy (Basic Books, 2005). Mills may hold positions in companies discussed in this column, and may provide technology assessment services for firms that have interests in the companies. He can be contacted at inquiries@digitalpower.com .